Uzbekistan’s Banking Sector: Moody’s Insights and Future Projections

Moody’s Rating Agency reports a stable outlook for Uzbekistan’s banking sector in 2024, despite an increase in problem loans to 7%. Government support is expected to continue, ensuring financial stability. The loan-to-deposit ratio reached 173%, and the banking sector’s total assets hit $59.5 billion, reflecting strong national reserves and resilience against geopolitical challenges. Real GDP growth is forecasted to be 5.7%, enhancing borrower solvency.

According to Moody’s Rating Agency, the outlook for Uzbekistan’s banking sector is stable in 2024. Despite a rise in problem loans to 7%—largely attributed to state-owned banks identifying non-performing assets—government support for major banks is expected to continue. This support is crucial for maintaining overall financial stability within the sector.

In 2024, Uzbekistan’s banking system reported a proportion of problem loans at 7%, which is anticipated to hover around 6-7% over the next one to one and a half years. The capital-to-risk-weighted assets ratio, without factoring in extra state capital, is projected to remain stable between 14% and 15%, slightly down from 14.3% at 2023’s end.

By the end of 2024, the loan-to-deposit ratio across the sector reached 173%, with state-owned banks at 237% and private banks at 108%. Market financing is predominantly composed of long-term liabilities, mitigating refinancing risks, although the high percentage of foreign currency deposits exposes the banks to potential exchange rate volatility.

Moody’s highlighted a high probability for continued state support for major banks, even with ongoing privatization initiatives. The government retains control over significant financial institutions like Agrobank and Mikrokreditbank, which are integral to economic policy execution. Since 2018, the total capital infusion into state-owned banks was approximately $1.8 billion, demonstrating strong government commitment.

As of the conclusion of 2024, Uzbekistan’s banking sector assets totaled $59.5 billion, representing 53% of the national GDP. The five largest banks collectively held 54% of the market, while state-owned entities controlled 65% of total banking assets. The bank creditworthiness ratings for 13 commercial banks, which represent 62% of the sector’s assets, range from b1 to baa1, with an average rating of b2.

The banking sector is fortified by robust national reserves, amounting to 37% of GDP, complemented by total loans also constituting 37% of the GDP. This configuration underscores the government’s capability to maintain economic and financial stability amidst persistent geopolitical challenges, including the ongoing Russia-Ukraine conflict.

As reported by Bankers.uz, based on Moody’s data, the real GDP growth for 2025-2026 is forecasted to remain at 5.7%, which is anticipated to enhance borrower solvency and the overall health of the financial sector.

In summary, while Uzbekistan’s banking sector faces challenges such as rising problem loans, the outlook remains stable supported by government backing. Key financial institutions retain significant market power, and the sector’s total assets show resilience against geopolitical events. The projection of stable GDP growth is likely to favor borrower health and financial stability in the years to come.

Original Source: daryo.uz